Blog

Share Buybacks With ETFs

January 28, 2013
Share:

ETFs offer ready-made buyback bandwagons. Should you hop on?

 

Companies have snapped up their own shares on the open market with increasing frequency in recent months. They do so for a variety of reasons, and investors have long used their actions as a signal to buy or sell shares on their own.

Believers in the buyback play offer a simple rationale: Who better than the firm’s own management would have a solid grasp of the company’s prospects in the competitive landscape and therefore its true value relative to its market price?

Others may view it obvious but still effective gimmickry aimed at goosing share prices by manufacturing higher earnings per share.

A pair of ETFs provide exposure to the buyback play, but they differ greatly despite their common strategy.

I’ll look briefly at each.

The PowerShares Buyback Achievers Portfolio (NYSEArca: PKW) is the larger and more liquid of the two. Launched in 2006, PKW was the first mover here. It holds a healthy $230 million in assets and trades at decent 10 basis point spreads.

The fund holds U.S. firms that have repurchased sizable chunks—5 percent or more—of their outstanding shares over the past 12 months. Top holdings include familiar names like IBM, Intel, Home Depot and Disney.

In the aggregate, PKW’s basket of stocks differs from a plain-vanilla cap-weighted portfolio a whole lot less than you’d expect given its niche focus. Large-caps dominate the basket and sector exposure is marketlike except for a bias to consumer cyclical stocks.

Not surprisingly, PKW’s performance overall during the past year looks a lot like the broad market, which is to say, good.

The question then is, Why bother?

 

ETF.COM CHANNELS

Want to learn more about smart-beta ETFs? Check out our smart-beta guide, essentials library and ETF screener!

ETF DAILY DATA

'VTI,' Vanguard's U.S. total market fund, led inflows on Wednesday, July 1, as total U.S.-listed ETF assets climbed to $2.123 trillion.

A slew of iShares funds paced the firm's issuer-leading inflows on Wednesday, July 1, as total U.S.-listed ETF assets rose to $2.123 trillion.

ETF.COM ANALYST BLOGS

By Drew Voros

Why is putting a client’s interest first not the industry standard?

By Matt Hougan

Contrarian plays, bad investing and authenticity in social media dominated the day.

By Dave Nadig

While they bring added risk, they can bring added returns.

By Olly Ludwig

The ETF world is a hotbed of interesting new ideas, as this week’s launches make clear.

ETF INDUSTRY PERSPECTIVE

By Invesco PowerShares

Smart beta appears to be poised for further growth.

By Dorsey Wright & Associates LLC

So many sectors, how do you choose? A quick guide from Dorsey Wright.

By Nasdaq Global Indexes

Bond exposure or bond performance? Only defined maturity indexes provide the latter.